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Broker snap: UBS sees upside from merger opportunities BSkyB

The share price of broadband and pay-TV group British Sky Broadcasting (BSkyB) was making decent gains on Tuesday morning after analysts at UBS upgraded their rating on the stock from 'neutral' to 'buy'.

The bank said that competitive concerns that have been hanging over the stock have already been priced in and growth opportunities are now being overlooked.

UBS said: "We think trading at Sky (BSkyB) will remain resilient despite competition from the new BT Sport channel. We do not think the economics for BT Sport stack up and expect Sky to agree a wholesale deal with BT on sports at some point in 2014.

"We think investors have overlooked significant growth from new initiatives such as Adsmart, NowTV, Sky Go Extra and Entertainment Extra+ that could add £212m to profits by 2018."

Meanwhile, analysts said that they also see "M&A upside" in the stock.

They speculated that Fox could revisit a merger of its European pay-TV assets to form 'Sky Europe'. Under this possible deal, BSkyB would remain listed to appease resistance from politicians, but have its operating assets injected into Sky Europe in return for a majority stake in the larger entity.

Meanwhile, the move to 'quadruple play' across Europe - combining the triple play service of broadband, TV and telephone with wireless services - could see BSkyB merge with either Vodafone UK or O2 UK, UBS suggested.

"Alternatively, Sky Europe could merge with either Vodafone or Telefonica to produce a European quad-play operator."

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